A US federal judge in Tennessee has temporarily blocked the state from enforcing its gambling laws against prediction market operator Kalshi's sports event contracts.
The ruling, issued Thursday by Judge Aleta Trauger of the U.S. District Court for the Middle District of Tennessee, allows Kalshi to proceed offering sports event contracts to users within the state while his lawsuit against Tennessee regulators is ongoing.
Trauger noted that Kalshi is prone to succeed based on his claim that federal merchandise law preempts Tennessee's attempt to manage its sports markets as illegal gambling.
The court concluded that Kalshi's sports event contracts were “swaps” inside the meaning of the Commodity Exchange Act, over which the law gives exclusive jurisdiction to the U.S. Commodity Futures Trading Commission (CFTC), and located that Tennessee's enforcement efforts were likely barred by conflict prevention principles.
Injunction, Kalshi. Source: CourtListener
The injunction applies to the identified state officials, while the Tennessee Sports Wagering Council itself was dismissed on grounds of sovereign immunity and Kalshi was ordered to post $500,000 bail.
Protracted conflict with states
The Tennessee case marks one other chapter in a broader conflict over the treatment of event contracts within the United States.
An earlier injunction from Trauger had already suspended enforcement of Tennessee's cease-and-desist letter alleging that Kalshi was engaging in unlicensed sports betting, ordered the corporate to stop offering sporting event contracts to customers in Tennessee, voided those contracts and refunded deposits, and threatened fines and further legal motion.
Kalshi has similarly gone to federal courts in several states, including Nevada, New Jersey and Connecticut, for injunctions against its event markets, with courts reaching different conclusions about whether interim relief needs to be granted.
CFTC steps in to defend prediction markets
The injunction also comes amid a changing federal backdrop because the CFTC seeks to claim dominance over prediction markets.
In a video message Tuesday, CFTC Chairman Michael Selig said the agency had filed a friend-of-court letter defending its “exclusive jurisdiction” over prediction markets and warned state regulators that the commission would face them in court in the event that they tried to undermine federal oversight of those derivatives markets.
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